Selling To The Price Shopper: How Far Should You Go?
By Greg Bukosky
The things you overhear on crowded buses! While attending two recent rebuilding conventions, I had the opportunity to discuss many of the industry’s pressing issues face-to-face with suppliers and rebuilders. Surprisingly, though, it was the things I heard in passing that stood out the most.
At both conventions, for example, old friends from around the country took time out on the bus ride to compare notes. The conversations went something like this: "How’s business? Did you hear that company ‘A’ is going to buy company ‘B’ next week?"
And then the inevitable question came up – "What kind of prices have you been able to get lately?" The answers were often disturbing. I listened to a brake rebuilder discuss turning away long-time business because he couldn’t match a competitor’s low-ball prices. The demand was still there, but the profit margins weren’t.
I also listened as a production engine remanufacturer (PER) discuss how he had been asked to lower his quality standards in order to meet the price point expectations of his mass retailer customer. His choice was easy – keep the business that’s keeping you afloat, or stand your ground and lose it to someone down the road.
These questions affect every rebuilder, not just the ones on the bus. Universally, people are searching for answers. One vice president of sales and marketing told me, "With more and more products being imported from countries that offer low cost labor, the pressure to keep prices down seems to be at an all-time high." Whether or not this is true, the fact remains that people will continue to want the best possible product at the lowest possible price. These days, it’s the job of the seller to convince the price shopper that the value assigned to a particular product is worth the price."
So what can rebuilders do to "load themselves for bear" when the price shopper comes knocking at their door? Whether it’s a walk-in buyer who wants an engine rebuilt, or a large business customer like a car dealership that wants a lower cost – you do have ammunition.
Name your niche
"Your flexibility in pricing is established long before the first customer walks through the door," said Tom DeBlasis, vice president of sales and marketing for S.B. International, Inc. (SBI). "If you can create a niche market where competition is lower, you will naturally be able to demand higher prices. If market demand for a product exceeds that product’s availability, there is little concern over persuading the price shopper to pay the asking price.
"The key, for example, to developing a niche is to select a market that permits higher margins. Don’t make the mistake of confusing a niche market with a specialty area. You may be the best crank grinder in a three-state area, but if demand isn’t there, don’t put all your eggs in that basket."
A good starting point that borrows from a trend in corporate America is to analyze your past projects (assuming you’re keeping the paperwork that you should) to see which have been profitable and which have not. Obviously, you’ll want to focus on the profitable ones.
Say, for example, you go though last year’s records and find that although you rebuilt 500 domestic cylinder heads, you only made a $20 profit on each. Upon further review, you see that you rebuilt three Mercedes-Benz cylinder heads, but you made $90 profit on each. That’s the part of your business you should grow.
There’s an old marketing axiom that says that the most important choices you make are what projects not to pursue. Bill McKnight, director of customer training and communication services for Toledo, OH-based Dana Corp., said that his company spends quite a bit of time helping machine shops do just that by identifying market opportunities in their respective areas that are not so price sensitive.
"If you can put together a blend of work, some with very good margins and some with not so good margins, it helps give you the profit levels that you need to operate," McKnight said. "At the same time, you don’t have to turn as many price sensitive shoppers away. Remember, they may be the ones that bring you a very profitable job somewhere down the road."
Educate the shopper
When a price shopper balks at your prices you can either walk away from the deal or try to find some amicable solution that suits both parties. In most cases, the typical rebuilder should always try to educate the buyer as to the value of their work.
Unfortunately, if you offer a "parity" product, this is often a no-win situation. First you have to convince the buyer that you can provide a better product than the competitor, i.e., crank grinding, head repair, etc. Then, even if you succeed, you have to convince the buyer that your service is markedly better than your competitor’s, and, therefore, worth the extra money. This, as most rebuilders would attest, is very hard to do with most common machine shop services.
A much better time to go the education route with price shoppers is when you have a unique product offering. As SBI’s DeBlasis noted, "In most cases, if there is a significant price difference between your product and a competitor’s, there is probably a significant quality difference as well."
Ken Carlson of Custom Design Performance & Machine, Columbia, CT, drove this point home with nothing more than a tried and true marketing tactic called a point-of-purchase display. Much like the beer and soda displays that you find at the supermarket to entice you to buy, Carlson created one for his customers in his shop’s front office area."
"As far as machining goes, we always stress the quality of our workmanship," Carlson said. "We don’t cut corners, and we’ve always told our customers that. Now, however, we actually display cylinder heads from other local shops and the mass retailers to show the differences in quality and workmanship. We have cutaways of failed heads and cutaways of our heads. In the end, almost everybody can see the difference. It makes it real easy to get people to pay the extra money. We didn’t have to ‘reinvent’ our products, we just had to create a new way to sell them."
Don’t be afraid to toot your own horn a little during the sales process, either. Whenever you can provide positive feedback from current or previous customers the better. Keep a binder with letters from satisfied customers to show to prospective shoppers. Or better yet, offer references to new customers that they can call at their leisure. You can say you’re the best choice until you’re blue in the face, but until a customer hears it from someone else they may not believe it.
Many sales and marketing experts within the rebuilding industry have learned to defend their profit margins over the past years through the effective use of value added sales tactics.
Dana’s McKnight offered this advice for machine shops in terms of value added offerings. "Many people who buy only on price don’t understand the benefits that you can provide versus the price leader in the marketplace. I’m talking about things like extended warranties, certified machinists, extended business hours, technical expertise, application-specific expertise, etc. It’s up to rebuilders to convince customers that the lowest price may, in fact, not always be the best price."
Ed Kiebler, national sales manager for St. Louis, MO-based Sunnen Products Co., is all too familiar with the subject of price shoppers because of his company’s premium product line strategy.
"It’s really just common sense," Kiebler said. "We tell people to look at their return on investment. Is the product well engineered? What will the product’s life span be? A less expensive machine may have half the life span, but still cost two-thirds of the price. Does the competitor offer technical support and service technicians? How long can a shop afford to have equipment down? What is the product’s track record? And last, but not least, what will the product’s used market value be?"
Obviously, individual rebuilders can benefit from some of Sunnen’s value added pricing strategies as well. Dave Goydos, service manager for Wickliffe, OH-based All Industrial Engine Service, said that his shop has used premium service to lock up most of the car dealership machine shop business in his market area.
"We have a dedicated pick up and delivery service that’s the best around," Goydos said. "We pick up immediately after we get the call, we get quotes back to the dealership the same day, and we offer a one- or two-day turnaround on most services under normal circumstances. That means having the rebuilt part back to the dealership’s garage in one or two days – not just having the work done here at the shop."
Goydos went on to add that his shop’s customers realize quality when they see it and they’re willing to pay more for it. "Most larger customers don’t like to deal with problems. We find that our walk-in and smaller customers tend to be the price shoppers. Over the past few years, we’ve actually had great success pushing up our prices with our big customers. We’ve gone from charging $88 for a typical 16-valve head rebuild to $180 – and not one customer has complained because they’re done fast and they’re done right."
There are very few rules of pricing that are written in stone. In fact, flexibility and negotiation have long been the tools of successful salespeople from the beginning of time. Therefore, it’s important that you, too, remain flexible and open to opportunity with regard to pricing issues.
"Many times we’ll give a new customer a break on price just so they can experience our quality firsthand," said Goydos. "The idea is to get them in the door and hooked on our service. We let them know up front that they got a break so they don’t expect it the next time. Nine out of 10 times they pay it without hesitation."
Another question that all rebuilders should ask themselves is, "Might there be a cheaper way to offer my product or service without sacrificing quality or profits?" Maybe it’s nothing more than having the lower paid, yet still capable, machinists do some of the tasks that your more experienced people usually do. You can bill the job out at a lower rate, or you can bill it at the regular rate. The point is, you will have increased your flexibility – and given an employee valuable training.
You may also want to consider being more of a one-stop shopping service for larger clients. Say, for example, you do a lot of business with one particular dealership. This dealership sends everything to you except the crank because you don’t offer that service.
The solution is to start having the dealership send you the whole job which you then outsource. You may not make any money on the crank grinding, but the dealership will be saved many hours of running around, not to mention lots of billing and accounts receivable activity. In effect, you will have made yourself much more valuable to the dealership, which just might increase your business over the long haul.
Change the game
Perhaps the best long term solution for rebuilders is to do what most of corporate America has done over the past five years – redefine itself. For example, GM didn’t create Saturn Corp. because it wanted to build better cars. GM realized that people wouldn’t accept the Saturn as a better GM car because of long held notions and perceptions of the carmaker.
They also realized a need for a vehicle in the $12,000 to $20,000 range, a need that wasn’t being filled by the Corsica, Cavalier and others – at least not at the profit levels that GM wanted. So they basically took a GM vehicle, rebadged it, set up separate manufacturing facilities and marketed it to the public as something totally new. In the process, GM was able to redefine, and most importantly, reprice the product, which was always the ultimate goal. That’s why Saturn was really created.
So as a rebuilder, you have to ask yourself what you can do to redefine, and therefore re-price your products. The goal is to change the perception of value, especially with a buying audience that has long been familiar with your services. Remember, we’re not asking you to start rebuilding cylinder heads backwards instead of forwards. It’s more a change in perception than reality.
Maybe it’s a process that you’ve always had to test and rebuild your cylinder heads. Put the process in writing. Give it a catchy name like the "12-Step Proving Process". Then go out and market it to your customers and tell them how it will save them money in the long run – even though it will cost them a little more up front. You didn’t really have to create anything new, but your customers don’t have to know that.
By nature, we’re all price shoppers. It’s funny how it’s okay for us to do it, but we’re often disturbed when others try the tactics on us. The best thing any shop can do to make sure it comes out on the plus side of the game is to have a solid strategy in place.
Whether it’s mining a new niche, educating your customers about your quality or changing your business completely – you can win at the price game. And after all, isn’t that the ultimate goal when that old friend on the bus asks you how your business is going?